Ross mentions the obvious that keeps getting overlooked in the Charles Murray debate:

“Third, if we expect less-educated Americans to compete with low-wage workers in Asia and Latin America, we shouldn’t be welcoming millions of immigrants who compete with them domestically as well. Immigration benefits the economy over all, but it can lower wages and disrupt communities, and there’s no reason to ask an already-burdened working class to bear these costs alone. Here the leading Republican candidates have the right idea: We should welcome more high-skilled immigrants, while making it as hard as possible for employers to hire low-skilled workers off the books.”

If you want that to be an evidence-based opinion, you have two choices: Giovanni Peri’s work, which implies the effect of immigration on the low-skilled is zero or slightly positive, and George Borjas’s work, which implies the effect is negative but small. Even taking the lowest estimate, the effect of immigration is far less than the cumulative effects of technical change and trade.

Think about the cost of living of the rudiments of the American Dream: owning a home and sending your kids to an okay school. In Southern California, for example, what proportion of young working class people can afford to buy (and pay for — not flip) a home in a decent school district?

How many young working class people can do that in Boston? It’s easier in Houston and there is no shortage of low skill immigrants there. Housing supply is inelastic in California and that is not the fault of immigrants.

“…better for the older baby boomers than it does for the younger generation coming on behind. Baby boomers had tight immigration controls when they were entering the jobs market but then relaxed them when they wanted more workers coming along behind. … [Immigration] increases returns to capital and holds wages down so it rewards property-owners. It is younger people who have lost out.”

Willetts nicely lays out one reason why the Blair-Brown Bubble in London did so little to alleviate unemployment among young Englishmen in blue collar cities like Liverpool He writes: “Quite simply, high house prices were one factor sucking in immigrants.”

Willetts observes, “The young man from Liverpool does not see why he should live in more cramped conditions than his family back in Liverpool occupy”. In contrast, the immigrant crams into a house with many others from his country. “His willingness to be under-housed gives him a labour market advantage and it is greater if house prices are higher”. In turn, sucking in immigrants creates a vicious cycle, driving up housing prices, which drives out more natives.

Moreover, remittances sent home from London to Liverpool buy a lot less in Liverpool than remittances sent home to a poor country:

“So it is not that our Liverpudlian is somehow a bad person compared to our Pole. It is that he or she cannot capture similar benefits for their family by under-housing themselves in London.”

Willetts sums up:

“The crucial proposition therefore underlying the economics of immigration in Britain is as follows. The larger the proportion of earnings consumed by housing costs, the greater the benefits of under-housing and the greater the price advantage of immigrant labour. It was not despite the high cost of housing that immigrants came to the house price hotspots in Britain to make a living—it was because of them.”

As Chris says, it’s all about supply elasticity. Coastal California is a pretty desirable place and if immigrants weren’t moving there, other Americans would be with probably about the same consequent rise in housing prices. This is true of urban areas everywhere in the world: the price of housing far exceeds the wage of an average working class person. It’s true from Tokyo and Mumbai (comparatively few immigrants and Mumbai, despite being very poor, has housing prices not far off U.S. levels) to London and New York. The Greater L.A. area simply fits this pattern and isn’t very remarkable.

What David Card doesn’t grasp is that illegal immigration is denying Americans the traditional wage premium for undergoing the pain of moving to a boomtown. Lowenstein can’t see it either, as he writes: “Immigrants do help the economy; they are fuel for growth cities like Las Vegas …”

Imagine you are an American blue-collar worker in Cleveland, making $10 per hour. You know the local economy is stagnant, so you’re thinking about relocating to fast-growing Las Vegas. But your mom would miss you; and you’re not a teenager anymore so you don’t make new friends as fast as you once did; and you really like the wooded Ohio countryside you grew up around and the fall colors and the deer hunting; and there’s this girl that maybe you could get serious about, but her whole family is in Cleveland and she’d never leave.

So, you decide, you’ll leave home behind if you can make 50 percent more in Las Vegas, adjusted for cost of living. That seems fair.

But, then you look through the Las Vegas want ads and discover you’d be lucky to make 10 or 20 percent more because the town is full of illegal aliens. They’re moving from another country, so it’s not much skin off their nose to move to Las Vegas rather than some place slower-growing.

Well, forget that, you say. I’ll stay in Cleveland.

Unfortunately, too many economists forget that too. They can’t—or won’t—put themselves in other people’s shoes and see how the world really works.

That doesn’t seem to hurt them professionally. But it can hurt America.

Steve, back to my original reply. The empirical evidence is saying precisely that your story is incomplete and/or not representative. Moreover, there has been a long methodological battle about how to handle geographic relocation when coming up with these estimates, yet under a wide range of assumptions the effects are small. You need to grapple with this evidence. Your anecdotes only show that immigration could in theory have negative effects on natives, but that is not controversial and not interesting.

I have looked at the immigration work of Peri for some time now. Recently, Peri has published a new paper, Immigrants’ Complementarieties and Native Wages:Evidence from California (http://www.econ.ucdavis.edu/faculty/gperi/Papers/california_wp_dec06.pdf). This paper attempts to show that immigration has raised the real wages of workers in California, even high school dropouts. A few notes:

1. The empirical data (Figure 3, Change in Real Wage of U.S. natives, by Education group 1990-2004) actually shows large declines for high school dropouts. -17.6% in California versus -15.1% nationwide. Peri does not attempt to explain the large decline in wages of low skill workers (as best I can tell) or why wages fell faster in California.

2. As best I can tell, Peri uses a aggregate production function that would make it very difficult for immigration to ever adversely impact the incomes of natives in general, although that might not be true for specific groups. For reasons stated below, this does not appear to be realistic for California and perhaps not the nation.

3. Peri assumes that immigrants are almost entirely complementary to natives, even at the low end (but less so). He is quite aware that this is a contentious point and attempts to defend his methodology and conclusions. I can neither support nor refute his assertions.

4. Peri appears to be aware that his work is deeply contra factual, although this is never explicitly stated. Natives have been net leaving California in vast numbers (millions) for quite some time now. If immigrants were complementary, this should either not be happening or immigrants should be net leaving as well. Obviously this is not true. Peri attempts to refute this critique via a regression of some type. He offers no other explanation as to why natives would be fleeing California.

5. Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California. Peri deflates California wages using a national CPI, not a state one. This is highly contrafactual in my opinion. California’s population would be much lower (30% of California’s population is foreign born) without immigration and housing correspondingly more affordable. I cannot quantify the impact of immigration on housing costs in California, however it is certainly large. Note that the Census (but not the BLS) shows California housing to be roughly twice as expensive as the national average.

6. If one takes into account housing costs, California is considerably more expensive than the US as a whole and real wages corresponding lower. Indeed, California emerges as one of the poorer states (43rd) in the nation, if the local cost of living is taken into account. Given the linkage between immigration and prices, it would appear that immigration has markedly reduced real wages in California. Of course, this would account for the native outflux contra Peri.

Steve, I don’t see how anything you wrote above addresses the central contention: that immigration substantially drives real wages down or substantially drives the cost of housing up. All you have provided are a fictionalized account of a worker in Cleveland and an unnamed person’s assertion: “I cannot quantify the impact of immigration on housing costs in California, however it is certainly large.”

How exactly are assertions and works of fiction supposed to refute data and evidence? Coastal California is expensive when you compare it to Utah but whoever said that was the appropriate comparison? Are you next going to blame the high cost of housing in Miami on Cuban immigrants?

Right. Supply and demand. Same with driving up the price of land: Supply and demand.

The third question is one that’s not in economists’ wheelhouse, and that’s what is the impact on public schools of a huge influx of the children of illegal immigrants? But, it’s not hugely hard to figure out some answers from your own life experiences and those of people around you: people try to get their kids away to a school district either with expensive enough housing or far enough away, or they send them to private school at vast expense, or they have fewer kids, or they don’t get married in the first place.

1. A massive literature has discussed the causes of the stagnation and decline of wages for low-skill workers. Immigration is not a first-order issue. Very generously assuming that the entire deviation of California’s experience relative to the rest of the country is due to massive immigration, it’s clear that a less than 3% effect is small potatoes compared to the larger story, which again has little to do with immigration. And careful analysis shows immigration does not even explain much of this 3% difference.

2. Actually, the aggregate production function is more prone to find negative effects of immigration on natives. Papers using a local approach tend to find more positive effects, but this can miss some negative effects of immigration if natives respond by moving to other areas, thus potentially reducing wages in those areas also. This is clearly explained in the very first paragraph of Peri’s paper (at least in the published version, Journal of International Economics 84(1), 2011).

3. The complementarity or lack thereof of immigrants and natives is estimated, not assumed.

4. Natives have also been flooding into Texas and many states in the South, despite relatively high levels of low-skill immigration.

5 and 6. Interesting regarding state-specific prices, but again, the inelasticity of housing supply in California is not the immigrants’ fault. For every anecdote you tell about California, I can tell one about Texas or some other state.

The major point is the first one. The wage effects of immigration on natives may well be negative, but they are not large negative and therefore immigration doesn’t deserve a major role in many of the discussions in which it is invoked.

Your confidence in Peri’s 2007 paper “Immigrants’ Complementarities and Native Wages: Evidence from California” is touching. Has anything happened in California since 2007 that might cause you to question your faith?

Steve, I have no particular confidence or lack of confidence in Peri’s paper, which, let’s remember, you brought up. Instead, I am basing my views on findings from a large literature which tells a pretty consistent story. In fact, if you read back through my points, you will notice that none of them defend Peri’s paper in particular, but do show that many of your comments and criticisms are wrong or misguided.

You keep talking about the raw correlation between immigration and native outcomes in California, but that is one (very noisy) data point. When will you consider the others?

Sorry, but _you_ brought up Peri, whose work on immigration is almost Malcolm Gladwellish in its lack of reality checks. Moreover, since Peri began, the Sand States have experienced a world-historical reality check, but that knowledge hasn’t seemed to percolate through to the immigration-is-a-free-lunch crowd.

I meant that Steve brought up that specific paper of Peri’s, then accused me of having outsize confidence in that one particular paper. On the contrary, I am basing my views on many papers by Peri, Borjas, Card, their coauthors, and others. My rebuttal of Steve’s criticism of that one paper does not rely on a defense of any methods that are specific to that paper and I do not place any extra confidence or faith in that paper in forming my views. Steve singled out this paper and then wrongly wrote that I placed extra or undeserved confidence in it. Sorry if I was unclear on this.

Steve, careful empirical study _is_ a reality check. Considering more than one data point _is_ a reality check. Otherwise, how do we reconcile rising low-skill immigration with below-national performance in California and above-national performance in other states in the South and Southeast, and how do we attempt to control for other very salient economic trends such as technical change and trade?

There’s a general pattern of economists taking naively each other’s papers promoting immigration without any reality checks. For example, the celebrated David Card paper showing that wages in Miami didn’t fall after the Mariel Boatlift of May 1980 is hilarious if you can recall what was going on in Miami in the early 1980s to boost the economy. Hint: it was the subject of a famous 1983 movie and famous 1984 TV show. Answer here:

Steve, good point but of course there is no solid drug data to give a sense of how large the effects of the cocaine boom might have been. (In this sense it might be your ideal criticism!) It hardly makes Card’s paper laughable. Confounding factors are always possible, and that is why researchers study multiple places and multiple time periods with varying methodology.

My larger point remains ignored: The literature almost uniformly shows small effects of immigration on the wages of natives. This is true even if we harshly discount the Card paper into irrelevance. In fact I am not aware of any respected economic study that shows otherwise for recent U.S. history. Immigration is simply not a first-order issue in the poor labor market trends among natives over the last 40 years.

The immigration literature is arguing over a small range of effects, but you seem to maintain that the impact of immigration is large—at least large enough to have meaningful impacts on social trends, according to your original comment. How much do you think native wages fall when immigration raises the supply of dropouts by, say, 10 percent? Can you reference respected academic research to support this belief? If not, what pervasive error do you think exists in current studies?

What you need to grasp is the divide between the handful of economists who study the economics of immigration seriously, like Borjas and Huddle, and the huge number of kibbitzers who are profoundly biased in favor of immigration and mindlessly celebrate any bit of Malcolm Gladwell-quality analysis that is pro-immigration. The David Card paper about wages in Miami from 1980-1984 is a classic example. It got written up in a huge article in the NYT and economists were enraptured. Finally, years after it came out, it fell to me to point out that Miami in 1980-1984 was, as anybody who’d seen “Scarface” (1983) or “Miami Vice” (1984) ought to be able to remember, was in the midst of a famous, famous Coke Rush. But the vast majority of economists were too biased and obtuse to notice.

More generally, here’s a fundamental problem with academics: the assumption that if an obvious fact hasn’t been written up in an academic paper in my discipline, then I am entitled, indeed, required to not notice it.

For example, recall the Freakonomics fad built around Steven Levitt’s theory that since the homicide rate was lower in 1997 than in 1985, then the legalization of abortion in 1970-1973 must have accounted for this decline in crime. Levitt went around to all sorts of top economics departments giving his spiel and, apparently, nobody pointed out to him that the homicide rate was much higher in 1990-1994 than in 1985. Levitt hadn’t noticed the Crack Era, and apparently neither did any of the economists he lectured.

I pointed this out to Levitt in a public debate in Slate in 1999, that in fact the homicide offending rate among the first cohort of juveniles born after the legalization of abortion was three times higher than the last cohort born before.

But, Levitt stubbornly refused to pay attention to this massive reality check, enjoyed a big bestseller in early 2005, then was humiliated in late 2005 when Foote and Goetz of the Boston Fed tried to replicate his analysis and discovered, not surprisingly, that his conclusion was due to programming errors he had made.

Steve, you are ignoring my questions and my main points in favor of repeating a criticism of Card’s paper. For the sake of argument, assume that Card’s paper is worthless. What is your response to the small effects found in all serious studies, including those by Borjas?

Congratulations for recognizing Levitt’s error. Now, what blindingly obvious fact are economists missing about immigration? Allow me to anticipate a couple of options.

1. Lots of low-skill immigrants, and low-skill natives are doing poorly. But there are also lots of high-skill immigrants, and high-skill natives are doing very well.

2. Lots of low-skill immigrants in California, and low-skill natives are doing poorly there compared to the national average. But, as I mentioned above, there are other states with large low-skill immigration but where native outcomes are above the national average.

“1. Lots of low-skill immigrants, and low-skill natives are doing poorly. But there are also lots of high-skill immigrants, and high-skill natives are doing very well.”

And so why let in the low-skill immigrants? (This really isn’t that complicated.)

“2. Lots of low-skill immigrants in California, and low-skill natives are doing poorly there compared to the national average. But, as I mentioned above, there are other states with large low-skill immigration but where native outcomes are above the national average.”

This is one of the dumber mistakes that economists make all the time: get causality mostly backwards when it comes to prosperity and illegal immigrants:

2006: “California, Arizona, Nevada, and Florida are economically vibrant because they have so many immigrants. North Dakota is in the doldrums because it doesn’t have immigrants.”

2012: “Hey, well, uh, the number of immigrants in North Dakota is growing, which must be why the economy is good there!”

No, it’s because they found oil in North Dakota. Similarly, in 2006, they had lots of subprime mortgages in the Sand States.

Letting in a lot of illegal immigrants just means that employers in boom areas can pay less than what it would take to get more American citizens to relocate. (But, when the boom is over, you are stuck with having to educate the children of the illegal immigrants — e.g., look at California’s NAEP scores.)

Steve, you are still not answering my question. You claim Borjas is a serious immigration scholar, yet his estimates imply immigration is a small contributor to the recent poor outcomes of low-skill natives. He has pioneered an empirical approach that allows for localized immigration to have broad negative effects on natives. What is he missing?

Your latest criticisms show that you are either ignoring or not comprehending my arguments.

1. My point is simply that a raw correlation between immigration and native outcomes on the national level is not conclusive. Do you agree?

2. I wasn’t talking about North Dakota and you know it. How likely is it that in most cases when immigration surges, native outcomes are buoyed by a fortuitous trend? Not very! Studies of immigration at the local level might use data on hundreds of metro areas across many years, and the empirical methods compare across areas (if immigration is higher in X than Y, are native outcomes worse in X?) and check the timing (if immigration is high in X and native outcomes are low, did native outcomes fall before or after the immigration surge?). The chances that shocks to natives are systematically more positive in places where immigration is high and at times when immigration is high, and that this effect almost or completely hides negative effects of immigration, is vanishingly small. Stop arguing from anecdote and embrace the evidence!

Try not to sprain something with all that thinking, Einstein. When you flood a place with Third Worlders, the value of the property you have to buy to get away from them really does shoot through the roof. Do you actually think the pundits and academics calling for more Mesoamerican immigration actually live around them? I mean, other than to spread pine straw in their subdivisions?

Supply and demand, as we are constantly reminded by economists like Tyler. Except for immigration, which is just a cornucopia of free lunches.

Anti-Gnostic, all the low- and high-skill immigrants in this country are shifting labor demand in addition to labor supply. The theoretical prediction is ambiguous, which is why you don’t see economists trying to settle the issue on theoretical grounds alone. No one has forgotten supply and demand, it just doesn’t get us very far on this question.

Property values have plummeted in California, as all the strivers realize living next to sheetrock subs even if you can do it in a 4/3 McMansion isn’t particularly pleasant. If you’re already established in Malibu or certain LA neighborhoods, your balance sheet looks great and the ticket for entry to your little slice of heaven just got that much higher. That’s why, if you’re an Obama-voter in Malibu, immigration seems like a great idea. Cheap domestic help, rising property values, piping-hot delicious ethnic food, and the costs are somebody else’s problem.

Murray declares early in his book that he doesn’t want to talk about illegal immigration, and of course his critics who claim that the real problem is economic inequality don’t want to talk about illegal immigration’s economic effects on the left half of the bell curve either.

So, good for Ross for not going along with all this intellectual self-neutering that is going on.

It seems like people here are usually good at finding ungated versions of articles. Can someone help with the link below. I have a hunch when they say “On average, total healthcare costs per enrollee per year for this subset were cut nearly in half – from $8,899 in year one to $4,569 in year three.” the measurement is in amount billed. Which at a hospital is a joke, because what they bill you for and what it actually costs are two entirely different things. And I doubt the figures are cash outlays, because if you make less than 200% below the federal poverty line you cannot afford to actually spend $9k a year for healthcare.

#6 What the hell is Kling talking about? This is what happens when Economists ignore geography and treat location as unimportant. There might be strong demand for Rentals but the houses built during the boom were largely built far on the outskirts of major urban centres – McMansions in the exurbs. I would take it that people who want to rent also don’t have money for a car or can’t afford to spent a lot on gas and to them the location of where the house is REALLY matters. Therefore the current crop of excess housing cannot really be converted into rental units to satisfy demand.
Geography is important.

Right, a huge fraction of defaulted dollars have been in the exurbs of the four Sand States, California, Nevada, Arizona, and Florida. A lot of people tried to use subprime mortgages to get their kids out of LAUSD and the like. But, wherever you go, there you are. And it turned out that subprime mortgages mean subprime students in subprime schools.

Yes – fuel costs are a major issue. How much did rising fuel costs have to do with bringing the housing bubble to an end? I haven’t researched this myself (not that I usually both to research things before commenting on them…) but it seems to me that you could have some tipping point where you’re building further and further out in places like Florida, Arizona, and Nevada and run up against a point where rising transportation costs make the houses totally uneconomically to live in.

High gas prices in 2008 helped change the psychology about exurban housing developments in California. For example, the Southern California region that had the highest foreclosure rate in the early part of the financial crisis (early 2009, say) was Lake Los Angeles, a dusty blue collar High Desert town 81 miles from downtown LA. When gas went to $4 per gallon in 2008, suddenly it cost $8,000 per year to commute in a 20 mpg pickup truck from Lake Los Angeles to a job in the real Los Angeles. That really knocked the wind out of the sales of these blue collar exurbs, and wiped out hopes that home prices in them would pop back up. This made clear that the securities built on mortgages in places like this weren’t just experiencing some in-flight turbulence, that they were permanently defunct.

I was but a wee freshman at the time, but in the fall of 2006 I went to one of J. Barkley Rosser’s (http://econospeak.blogspot.com/) guest-lectures on the this subject. If my memory serves me, it wasn’t gas prices so much as gas company profit margins. Apparently, the housing market derivatives were put into portfolios, and were largely balanced by shares of Exxon and BP (or maybe corporate Bonds?). I believe the point was that the funds containing these derivatives were scrutinized once the word got out to “scrutinize everything balanced by BP or Exxon”, and their scrutiny led to the realization that the larger issue was the derivatives. I can’t find the source or paper referenced in the lecture online right now, but I’ll keep looking.

Your point is what? You agree with CBBB that converting foreclosures to rentals won’t help? Because if so, you disagree with everyone except CBBB. Foreclosures are being turned into rentals and it is helping.

Yeah I’m sure it is to some extent, and I think if occupants who get foreclosed on were able to stay in their house as renters that would be good. But realistically housing isn’t nearly as fungible as Kling says – I mean that’s just obvious if you even consider location for one second (which most Economists don’t).

Supply and demand is always valid and usually useful, but must be carefully applied. In the case of immigration, the problem is that both the labor supply and labor demand curves are shifting out. And do not forget about high-skill immigrants that demand, directly or indirectly, low-skill labor.

A further point is that even if only labor supply was shifting, a simple supply and demand analysis does not tell you how large a wage effect to expect. For that, you need empirical studies of the sort that you are ignoring in this discussion.

Selling Papers Doesn’t Make Cents Anymore
January 20th, 2012 by John Mansfield

In the mood for a doughnut, I stepped in a bakery this morning, and when the clerk rang up my two sour cream doughnuts, the kind that used to be buttermilk and not quite so sweet, I decided to pick up a Washington Post as well. $2.20 changed to $3.26. Surprised, I looked at the front page, and sure enough, in the corner where it used to say 75¢, it now says $1. Answering my question when that happened, the clerk said since Monday.

It was January three years ago, that the newsstand price was raised from 50¢ to 75¢. Only a couple years before that in 2007, I could buy it for 35¢. Changing from 35¢ to 50¢ didn’t make a big difference—two coins either way. Seventy-five cents felt different. Three quarters. Something to think about, scan the front page first, maybe decide against. Now it’s a whole dollar, as much as a somewhat overpriced doughnut. It’s about four years since I picked up a paper from a coin box. Doing that now must feel like parking downtown or running a load at the laudromat.

That’s because the doughnuts and newspaper are getting BETTER! Like gold. Gold these days is so much nicer than it used to be. Back when gold was around $400/oz, it always looked so shabby and would crumble with use. Now, it’s all shiny and hard and requires a hedonic adjustment.